Changes in Medicare payment rates and beneficiaries’ demand for medical services could explain only 0.8 percentage points of the 3.2 percentage point slowdown in growth during 2007-2010.

That leaves 2.4 percentage points of reduced growth unexplained.

Growth in hospital inpatient spending, which accounted for the largest share of the program’s spending, fell from an average annual rate of 4.3 percent between 2000 and 2005 to 1.7 percent between 2007 and 2010.

Spending growth slowed for a broad range of elderly Medicare beneficiaries: both high- and low-cost beneficiaries, urban and rural residents, and across states.

0.3 percentage points of the explained spending growth reduction was estimated to come from changes in demand because of age distribution, obesity status, and smoking history.

0.2 percentage points of the reduction came from the fact that more beneficiaries enrolled only in Part A and not Part B.

0.1 percentage points of the reduction was attributable to an increase in the use of prescription drugs, basically meaning there was a link between more prescription drug use and less spending on physicians and hospitals.

Theories on Causes Behind Lower Spending Growth:

So if not the economy, if not Obamacare, if not payment rates and demand for services – what does explain the slowdown in health spending growth? The CBO paper authors have two ideas they say are worth researching, at least to explain traditional Medicare spending growth declines.

2. Changes in provider incentives

Reimbursement for providers from private health plans might have grown faster than Medicare payment rates, giving providers an incentive to treat Medicare beneficiaries less than privately insured patients. Of course, when unemployment rises and the number of privately insured people falls, providers would have an incentive to treat more Medicare patients to make up the business. The CBO paper tested those theories and found inconclusive results. Care management and general public awareness about health costs also could have influenced the decline in Medicare spending growth.

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The Piper Report blog on healthcare business and policy covers issues in Medicaid, Medicare, and the Affordable Care Act, with articles, interviews, resources, primers, book reviews, and more. Edited by Kip Piper, CEO of Medonomics.